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Saturday, 28 February 2015

What is ... the Pay as You Feel principle?

The Pay As You Feel principle (also known as Pay What You Want and Pay What You Like) is a heterodox pricing strategy that puts the customer at complete discretion over the price they are willing to pay for goods or services.

The most commonly used names for this pricing strategy are completely self-explanatory because the idea that the the customer is at complete freedom to determine the price for themselves is actually quite a simple one.

Even though the idea itself is simple enough, there are quite a lot of interesting economic factors to consider when it comes to breaking the orthodox mindset that things have a set price and replacing it with a pricing system that allows the price to exist as a free choice between £0 and any value the customer chooses.

Examples

I'm going to begin by briefly detailing a few examples of enterprises that are funded on the Pay As You Feel principle.RadioheadOne of the most famous examples of a Pay as You Feel pricing strategy was the release of the 7th album by the UK band Radiohead called "In Rainbows". The album was made available for download for whatever the fans wanted to pay for it. Although the majority of people who downloaded the album did it for free, it was reported that the digital revenues from this single album were worth more than the digital sales of all of their six previous albums combined.The Real Junk Food ProjectThe Real Junk Food Project is a café in my old stomping ground of Armley in Leeds that uses discarded (but still perfectly edible) food from supermarkets and chain restaurants to provide meals on the Pay as You Feel principle. To date they have saved over ten tons of perfectly good food from going into landfill and inspired several other similar projects all over the UK. One thing that should really appeal to economists is the guy who came up with the concept of this West Yorkshire pay as you feel café was called Adam Smith!

Humble BundleHumble Bundle is a series of bundled digital creations that have been released on the Pay as You Fell principle since 2010 (here is a list of Humble Bundle packages). The average price paid per Humble Bundle has varied between just over $14 and just under $4. The fact that Humble Bundle has survived on this business model for over four years in the highly competitive markets of computer games, ebooks, audiobooks, videos and music is enough to show that Pay as You Feel is a viable potential business strategy.WikipediaAlthough Wikipedia don't self-describe as a Pay as You Feel operation, it is quite clear that this is an accurate way of describing their fundraising operation because they rely on donations from users and refuse to allow adverts on their pages. The fact that Wikipedia is the seventh most visited website in the world, yet they only have 217 paid staff is an amazing tribute to the power of the collaborative community that built it, maintains it, and improves it; and to the the voluntary donation system that funds it.

Another Angry Voice (this website)The only sources of income for this page are small donations from people who appreciate my work enough to make a donation, or set up a small monthly subscription (even though they are perfectly free have access to all of my online work without having to pay for it).

When I release my book later in 2015 I plan to do it on the Pay as You Feel principle too.

Advantages

Conducting business on the Pay as You Feel principle has distinct advantages for both buyers and sellers.

When the buyer is free to choose their own price, they are highly likely to pick a price they consider to be fair, because few customers are going to voluntarily select a price that lies outside their "spectrum of acceptability". This means that (as long as the product isn't shoddy) it's incredibly unlikely that the customer will end up feeling like they've been "ripped off" and suffering buyer's remorse.

This ability for the buyer to choose the price that they find most acceptable is a profoundly important factor because it's capable of providing the best possible sense of satisfaction to the customer, and I'm pretty sure that any marketing wonk will tell you that there is no batter advert for a product than a very satisfied customer.

Another of the main advantages for the seller is that they do not end up excluding customers by setting an arbitrary price for their product/service that is too high (some customers can't afford it) or too low (some customers may imagine it to be "trashy" or low quality if it is priced too low).

Yet another advantage to the seller is that by giving away their product for free they are still increasing exposure to their product, and increasing their potential future market in the process. If a writer ends up giving away ten thousand copies of their book for free, then if it is a good book, that's 10,000 people who might consider returning for another book in the future (potential future paying customers), and 10,000 people who may have gone around telling their friends and family how good the book is (free advertising).

Disadvantages

The existence of freeloaders is the most obvious disadvantage to the Pay as You Feel principle. If the buyer offers to give away their product for free to those who cannot afford it, there will always be people who will take the product for free, despite being more than affluent enough to be able to pay for it.

Even though the system is open to abuse by selfish people, my personal view is that I'd rather have ten of these selfish people freeloading, as long as one person who genuinely can't afford to pay isn't priced out of the market as would be the case had I chosen to use an orthodox arbitrary pricing system.

Another potential disadvantage with Pay as You Feel is that some people are deterred from buying at all because they "feel bad" if they imagine that they are paying less than an appropriate price, so they may not buy the product at all rather than risk feeling bad that they've somehow "cheated" by paying less than a fair amount.

A further potential disadvantage with the Pay as You Feel principle is that it is likely to be a sub-optimal pricing strategy if it is used in isolation. If the seller prefers to focus on their short-term profitability (rather than adopting some longer-term objective such as ensuring that the maximum number of people get exposure to your product) then it's probable that allowing numerous customers to take their product for free would not not be the optimal cashmaking strategy.There are several ways of optimising Pay as You Feelso that the problems outlined above are minimised as much as possible, some of which I'll detail in the next section.

Optimising Pay as You Feel

Rewards

One of the simplest and most effective ways of optimising Pay as You Feel is to offer rewards to those who actually pay. To give an example, if you're marketing a music album, you could provide a bonus track (or three) on downloads that have actually been paid for, while the people who download the album for free just get a download of the standard version.

Recommended prices

Recommended prices are a good way of minimising the effect of the potential "feel bad" effect that deters some potential customers because they're afraid of feeling guilty about having paid the wrong price (detailed above). If the customer is given a clear indication of what is considered a fair price, then they can ensure that their payment falls within their personal "spectrum of acceptability" in relation to the numbers that have been suggested by the seller. Examples of two possible "recommended price" strategies are shown in the illustration.Beat the averageOne of the most efficient ways of maintaining a reasonably high level of payments is to offer a reward to those who beat the average price. If people can see that the average price paid by those who actually pay for the product is say £4.82, then they are likely to pay £5.00 and claim their reward. There is one potential drawback with this strategy, which is that potential customers who might be inclined to pay a lower price (say £1.50) but are unwilling to pay almost £5.00, might elect to not pay anything, or even not bother carring out the transaction at all, on the basis that they'd be getting an inferior product (the product without the reward) if they paid less than the strike price.Reputation

A Pay as Your Feel restaurant is a good example to illustrate how reputation can be a strong incentive for people to actually make a Pay as You Feel payment, rather than just freeload. If a person who is clearly homeless or destitute goes in and has a meal for free, nobody is going to begrudge them it, because they can't afford to pay. However if a clearly well-to-do couple come in and try to leave without paying anything for their meal, the staff are going to judge them for it, and they'd have to be pretty shameless people to be able to walk out of the place without feeling pretty conflicted about whether the sheer embarrassment of being such a "scrounger" was really worth the few quid they saved by not paying.

Online reputation is an increasingly important thing, so it is easy to see how online reputation could be used as an incentive for people to actually pay for their products in Pay as You Feel transactions. One potential strategy is the awarding of reputation points to those who choose to actually pay for Pay as You Feel products, then allowing those reputation points to be aggregated into the various online reputation management platforms of the kind that already exist.

Charity

Another strategy that can be used in order to encourage customers to pay a higher amount is to make it clear that a certain percentage of the payment will be given to charity, or that if a certain payment threshold is reached, a charitable donation will be made. The fact that customers pay substantially more when they know a charitable donation will be made has been proven in research. The research showed that the increase in price paid was significantly higher than the sums given to charity, meaning that this strategy is beneficial to the seller, and to the charitable causes alike.

Choice

Another way in which customers can be encouraged to pay a higher price under Pay as You Feel pricing systems is if they are given some choice over how the money is spent.

An example might be that the customer is free to choose how their money is spent once the price paid meets a certain minimum threshold. Hence a self-employed writer/journalist might allow their customers to choose into which spending category any amount over the strike price is allocated to, for example:

If you donate more than £5.00, you can choose how you think that extra money should be spent:

A donation towards my admin and travel costs

A donation towards my research materials

A donation towards my next book

A donation towards my new documentary

A donation towards my new website

If the customer is given choices like these, the transaction begins to feel more like an investment than a simple purchase at a set price. Not only does the customer get the satisfaction that part of their money is being "spent wisely", but they are also that bit more likely to remain a customer because they feel like they've actually made an investment in one of the seller's forthcoming projects, rather than having just participated in a one off set price transaction with the seller.

Economic Considerations

If Pay as You Feel become a more popular pricing strategy, then there are many economic considerations. These include considerations of how such shifts in pricing strategies might interact with existing economic systems and ideas, and how Pay as You Feel could be used in conjunction with other novel economic concepts.

I am aware that this article is already quite long (even by my own standards) so I'll just briefly outline a few of these considerations.Pay as You Feel and rational self interest

The fact that the Pay as You Feel principle actually even works is yet another glaring example to add to the ever growing mountain of evidence that many of the the fundamental concepts that underpin orthodox free-market ideology are hopelessly unrealistic. If the neoclassical economic models are correct, and all humans are rational agents committed only to the serving of their own economic self-interest, then a funding model which relies on people paying money for what they could have for free, simply couldn't work.

In order for Pay as You Feel projects to make money, a certain percentage of society must be ascribing a higher value to non-financial considerations such as fairness, social responsibility, generosity or charity, than to the pursuit of their own rational economic self-interest. If this were not the case then all customers would surely just choose to pay nothing and keep all of the money for themselves.

The fact that Pay as You Feel projects succeed shows that any economic system that defines human beings as perfectly rational economic agents must be fundamentally incapable of accurately describing reality. Every single time a person decides to pay for something that they could have had for free, it's a poke in the eye for people who believe in the right-wing economic orthodoxy.Pay as You Feel and socialism

The Pay as You Feel principle is clearly compatible with the socialist dictum "from each according to their ability, to each according to their needs", but it puts the determination of how much is to be given in the hands of the individual, rather than having it dictated by the seller, or by the state.

In my view Pay as You Feel is entirely compatible with libertarian and anarchist versions of socialism where as much economic freedom as possible is devolved to the people, but it's fundamentally incompatible with old-fashioned "command and control" socialism, where the price of almost everything is dictated by centralised government agencies.Pay as You Feel and price discoveryPrice discovery is the process by which the price of an asset is determined in the marketplace.

The widespread adoption of Pay as You Feel funding models would have significant implications on the way that market prices would be determined. It is obvious that handing all discretion over the sale price to the buyer would have important price discovery implications for the enterprises that choose to adopt these strategies, but they would also have implications for other players in their marketplace too. If suddenly one seller begins offering their product on the Pay as You Feel principle, other agents may have to seriously consider adjusting their own pricing strategies in order to remain competitive.Pay as You Feel and reputationAs I mentioned in the section on Pay as You Feel optimisation strategies, there is a great deal of potential overlap between Pay as You Feel and digital reputation strategies. As the availability of information storage continues growing exponentially, the capacity for tracking, managing and even financialising our digital reputation is going to increase. Money has always served as a store of reputation (the "wealth and status" aspect), so it makes a great deal of sense that this new found capacity for digitally quantifying reputation will likely be developed and financialised. If "being seen to pay a fair price for things" becomes an important part of one's digital reputation, then people's transactions with Pay as You Feel sellers could potentially assume critical importance.

Pay as You Feel and copyright lawIf Pay as You Feel pricing strategies became more common in the digital downloads marketplace then the digital copyright theft industry would be severely undermined because the customer incentive to source copyrighted material from "pirates" would be almost eliminated. Why would anyone bother going to a bootleg operation for a copy when they could just obtain the item from the originator for free, or for whatever minimal price they deem most acceptable?

It doesn't matter at all whether you see online piracy as acceptable or not - it's a fact that websites like the Pirate Bay are currently seen by their users as fighting against the profiteering ways of the music, television and film industries.

Under Pay as You Feel the boot would clearly be on the other foot, with the legitimate seller cast as the freedom fighter giving his stuff away for free to those who can't afford it, and the "pirates" cast as the villain taking people's work for free and profiting from it (via ad revenue on their websites, selling it at a mark-up price, plagiarism or whatever). It wouldn't be long before the myth of the digital "pirate" as the information freedom fighter would be rendered obsolete by the fact that taking stuff that someone else has given away for free and then using it to make money for yourself is nothing more than parasitical profiteering.

As a customer it would take a severely tortured moral justification to explain why you went to an online bootlegger to get a copy of the film/book/animation/music, when you could have got it direct from the original source, either for free, or for whatever price you consider fairest. In my view it should be socially frowned upon to make a business model on giving away other people's free content (but not prohibited because policing the market place in free goods would blatantly a wasteful economic sinkhole of time and resources). However the act of actually charging people for access to other people's Pay as You Feel creative content should clearly be considered a crime because it represents a theft against the buyer. It's obviously fraudulent behaviour to charge someone a set fee for the content they could have had for free from the original source. Pay as You Feel and gifting economicsI'm particularly interested in gift economics, with which the Pay as You Feel Principle is very clearly compatible. If we think of Pay as You Feel transactions as being a gift to the buyer from the seller, and the Pay as You Feel payment as a reciprocal gift to the seller from the buyer, it is easy to see how the syntax of gift economics can be used to explain such transactions.

Thus transactions become "gifts" and payments become "reciprocal gifts", which builds a bond of recipricosity between the market participants, who no longer have to be considered "buyer and seller", but rather "giver and receiver".

When the giver is prepared to give their property away for free as a gift, then copyright law needs serve a much simpler function; that of enforcing the inalienable ownership of the giver - that any receiver can then give the product away for free again, but the originator retains the exclusive and inalienable right to sell at a price.

Gift economics is a fascinating subject, and I encourage you to do some more reading on it if ideas like the monetisation of society and the financialisation of class hierarchies make you feel sick, because gift economics provides an insight into how pre-monetary economic systems may have functioned, and how post-monetary or supra-monetary systems might be established.

Conclusion

After consideration, it seems that the best way to conclude this rather long article is to provide a brief personal explanation of why I decided to embrace the Pay as You Feel principle, rather than taking the much simpler (and likely much more profitable) orthodox approach of blathering my website in adverts and hosting a load of paid "click bait" articles at the bottom of each post.

The first reason is that I see Pay as You Feel as a test of my own faith in humanity. Do I believe strongly enough that there are enough fair-minded people out there to make enough small micro-donations between them to meet my costs of producing this blog, and my very modest costs of living? Choosing Pay as You Feel is a demonstration that I do.

The second reason is that I see Pay as You Feel as a test of my own ability as a writer. Am I capable of producing writing of sufficient quality that people consider what I'm doing good enough to be worth voluntarily supporting with their own hard-earned cash? Choosing Pay as You Feel is a demonstration that I do.

The third reason I've chosen to embrace Pay as You Feel is that I really want to see it succeed as a concept, because every single Pay as You feel transaction is a condemnation of the right-wing orthodoxy that tells us that humans are nothing more than self-serving units in the economy, and that every product in the economy has a fixed arbitrary price at any moment in time. Anyone who rejects the idea that the produce of their labour has a fixed price (as Pay as You Feel givers clearly do) is blatantly an economic rebel. By setting the price at 0-n (anywhere between free and whatever you want to pay for it) instead of picking an arbitrary fixed price for it, the seller is rejecting pretty much the entire orthodox economic framework. And by handing complete discretion to the receiver, the giver in the Pay as You Feel transaction is providing the receiver with the power to prove to themselves that they are behaving as unselfish agents in the economy too, meaning that their economic behaviour cannot be constrained by orthodox economic theories that cast them only as ruthlessly self-interested individuals.

So to summarise, I've chosen to live by the Pay as You Feel principle out of a curious blend of faith, self-belief and rebelliousness.

Another Angry Voice is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.